Part B: Regional Inequality (Causes, Solutions) Flashcards by Arnaud du Roy

Do you need people to move (argument pro place-based policy)

Germany post-reunificiation - little movement of people, yet wages in the east rose 42% in half a year

How well did you know this?

Not at all

Perfectly

Spending gap UK to Germany on inequality

5bn a year only in UK. Allocated £2.6bn for 2024/25

1.7 trillion over 3 decades in germany - 10x per annum

How well did you know this?

Not at all

Perfectly

Infrastructure investment positives

Easy to spend a lot at once without too much decision-making cost

Political ribbon-cutting and bi-partisan consensus on importance, strong support from lobby groups

Public good - undersupplied - GOOD
Direct job creation - GOOD
Arteries and veins of an economy - GOOD

Necessary precondition for economic growth, high economic returns from investment. (Ashauer, 1989) Stocks of public infrastructure explains differences in economic growth
- Biased study which would not stand test of scrutiny today

How well did you know this?

Not at all

Perfectly

Infrastucture correlation to productivity

Gibbons et al. 2019 shows that local improvements in road network have positive effects on local productivity, wages and employment

How well did you know this?

Not at all

Perfectly

Popularity of infrastructure investments

Represented 50% of all investment in regional development in the early 2000s for the EU (Rodriguez-Pose and Fratesim 2004)

ERDF - spain motorway etc

How well did you know this?

Not at all

Perfectly

Bad Infrastructure

White elephants

Spanish airport Ciudad Real was sold for 10,000 - it cost 1 billion

How well did you know this?

Not at all

Perfectly

Devolution - UK Commission citation

Transfer of powers and resources to mayors and combined authorities will limit short-term thinking caused by the constant churn in Whitehall, and thus enable the generational thinking that can most effectively utilise the potential of left-behind places (UK 2070 commission, 2019)

How well did you know this?

Not at all

Perfectly

Dunford, 1995

Soft factors, e.g. the quality of government, institutional set-up, etc, are key in regional development and policy

How well did you know this?

Not at all

Perfectly

UK Mayor

Andy Burnham - Mayor of Manchester wants funding to be one simple grant like Whitehall funding of Scotland and Wales giving more flexibility
The architecture to support German-style levelling up

How well did you know this?

Not at all

Perfectly

Cornwall Case Study

Cornwall Council was the first rural authority to secure a Devolution Deal in 2015
Local management of over £568m
Targeted measures to tackle fuel poverty, adults’ social care services, business support (11,000 supported in 2017)

How well did you know this?

Not at all

Perfectly

EU funds case study

Cornwall and Yorkshire reduction in unemployment due to EU Cohesion Policy
However, effect short-lived in Yorkshire after policy stopped
EVAL: bad short-term policy or due to GFC

Impact on Populism

EU funds has a substantial effect in reducing votes for populist parties - around 9% (Albanese et al., 2022)

Highly funded areas where unemployment decreased were more likely to vote remain in Brexit (Crescenzi et al., 2020)

How well did you know this?

Not at all

Perfectly

Negative impact of EU funding

Policy not effective where needed most due to poor institutions and human capital
Funds can worsen institutions: more corruption - less white collar crimes without EU funds

Does not mean we should stop funding - but important to have checks - The EU has increased checks since 2014

Barone et al., 2016 - Losing funding tends to undo a good part of the positive policy effects

Policy keeping afloat struggling economy rather than actually improving it?

Abruzzo region - continued to grow GDP per capita just not as quick as synthetic receiving money. ALSO GFC EVAL

How well did you know this?

Not at all

Perfectly

US Spending on Place-Based Policy

Biden spent $3.8 trillion - Inflation Reduction Act etc
$80 billion place-based

TVA: Keynesian policy - big infrastructure, roads, schools and dams

Programme led to large gains in agriculture (reversed when subsidies ended) but gains in manufacturing employment intensified over time - policy kick-started agglomeration economies with forces persisting. Benefits exceeding costs and economic development spiralled (Kline and Moretti, 2014)

How well did you know this?

Not at all

Perfectly

China’s SEZs (Lu et al., 2019)

PB Policy
- preferential tax deductions
- discounted land use fees
- generous loans

Significant positive impact
- attract new firms
- knowledge spillovers
net benefit of 15bn

= strong evidence for PB policies like SEZs

How well did you know this?

Not at all

Perfectly

Negatives of PB policies

Deadweight problem - public help subsidises activity that would happen anyway

Displacement - areas nearby lose out

UK local enterprise zone initiative - bordering regions suffered a lot

How well did you know this?

Not at all

Perfectly

What economic shift has occurred in developed countries?

Shift to a knowledge economy which favours high skill jobs

Moretti, 2012

How well did you know this?

Not at all

Perfectly

What are the agglomeration effects observed in regional economies?

Concentration in a few core urban regions

London gains 6+% graduates while the middle of England loses most

How well did you know this?

Not at all

Perfectly

Which region attracted the bulk of the new economy in the UK?

The Southeast

How well did you know this?

Not at all

Perfectly

What policy did Thatcher implement regarding unions?

Banned money unions to put a break on the economy

How well did you know this?

Not at all

Perfectly

What was the government’s approach to manufacturing in the 1980s?

Decided to take away support from manufacturing to shift towards knowledge

How well did you know this?

Not at all

Perfectly

How much did UK jobs in manufacturing decrease in 30 years?

By 20%

How well did you know this?

Not at all

Perfectly

What percentage of UK jobs were knowledge-based in the same period?

Up 20%

How well did you know this?

Not at all

Perfectly

How did the trends in US employment from the 80s to 2015 compare?

Non-routine cognitive jobs grew from 30% to 55% of all employment

Economist, 2015

How well did you know this?

Not at all

Perfectly

What impact did globalization have on production?

Made outsourcing and offshoring of production possible

How well did you know this?

Not at all

Perfectly

What was the historical misconception regarding economic efficiency in the UK?

Over-concentration in southeast was thought to be economically efficient

What did the Barlow Commission state about regional imbalance?

It represents a serious drain on the rest of the country

What was a key issue for UK regional policy?

Lack of funding intensity and high churn of policy ideas

What did Thatcher's White Paper in 1994 emphasize?

'Success has to be earned through improved competitiveness'

What was the effect of the Coal Board's announcement in 1984?

20,000 miners put out of work due to closure of uneconomic pits

What approach did the UK take towards manufacturing decline?

Allowed decline and focused on building a financial services powerhouse in London

What is the funding intensity for regional inequality policy in the UK?

0.15% per annum of GNI

How does the funding intensity in the UK compare to Spain, Italy, and Portugal?

UK's is significantly lower, with those countries at 2 or 3%

What can selected towns receive from the Towns Fund?

Up to £25m

What is the criticism of the funding provided by the Towns Fund?

It's a little more than an underpowered 'pea shooter'

What policy did Germany implement to protect its manufacturing?

Invested in industrial policy and focused on knowledge-intensive, export-oriented manufacturing

How does Germany's regional inequality compare to that of the UK and France?

Lower due to successful manufacturing areas and knowledge-intensive service sector agglomerations

What theory explains agglomeration economies?

New Economic Geography by Krugman, 1991

What is a key factor in the New Economic Geography theory?

Increasing returns to scale and imperfect competition

What does the theory suggest about skilled vs unskilled workers?

Skilled workers move, unskilled do not

What phenomenon occurs as workers migrate to new regions?

Production and consumption capacities move, generating further agglomeration forces

What can lead to cumulative causation in economies?

Small forces snowball into extremely divergent outcomes

What does Myrdal's theory suggest about social systems?

There is no tendency towards automatic self-stabilisation

What example illustrates the concept of a snowballing economy?

Amazon's choice of Seattle due to the presence of Microsoft

What distinguishes employment in France by skill level?

All regions experience upgrading, faster in core urban areas

What has fueled regional inequality recently?

Market forces like tech change and globalization, alongside institutional factors

What institutional factors have contributed to regional inequality?

Subsidies to capital, reduced trade union power, declining industrial policies

Why do we care about regional inequalities?

Regional inequalities impact economic efficiency and social stability ## Footnote They are linked to preferences for amenities and the distribution of public goods.

What is the cumulative output growth advantage of the South over the North in the last five decades?

26% ## Footnote According to ONS, 2019.

What does the neoclassical perspective say about regional inequality?

It views regional inequality as the price for national efficiency due to agglomeration economies ## Footnote There is no room for government intervention.

What are Spatial Equilibrium Failures?

Economic inefficiencies that arise from unexploited potential in all places ## Footnote Every place can efficiently produce some economic goods.

What is the correlation between economic stagnation and populism?

Strongly correlated ## Footnote The phenomenon is referred to as the 'revenge of places that don’t matter' (Rodriguez Pose, 2018).

What impact did austerity cuts have on the Brexit vote?

Led to a 6 percentage points higher leave vote ## Footnote Remain would have won without austerity (Fetzer, 2019).

How does trade with China affect protectionist nationalism?

A one standard-deviation increase in imports from China led to a 2 percentage points increase in leave voters ## Footnote Trade with China positively correlated with protectionist nationalism (Colantone and Stanig, 2018).

What does urban density represent according to Glaeser, 2011?

The clearest path from poverty to prosperity ## Footnote This supports the importance of place-based policy.

What is cumulative causation?

A concept about positive feedback and self-reinforcement ## Footnote It suggests that outcomes are shaped by past circumstances.

What is path dependence?

Outcomes are contingent on historical events, influencing current conditions ## Footnote It affects local institutions, social networks, and entrepreneurship.

Why do politicians struggle in lagging-behind regions?

Due to lock-in and the costs of convincing firms to relocate ## Footnote Successful policies are often cheap, while unsuccessful ones can be destructive.

What is the implication of path dependent processes for policymakers?

They can be self-reinforcing, making successful policies easier and negative trends harder to reverse ## Footnote Politicians can succeed in areas like London but struggle in left-behind regions.

What is a characteristic of agglomeration benefits?

Industry success attracts highly educated talent, increasing local diversity ## Footnote This can enhance local goods and services (Moretti, 2010).

Fill in the blank: Any place-based policy that attempts to redress regional inequality will be _______.

[inefficient or ineffective] ## Footnote This perspective is supported by Overman, Midelfart-Knarvit, 2002.

What correlation exists between city demographics and political voting patterns?

Cities tend to vote Democrat ## Footnote This trend was noted by the New York Times, 2020.

How does trust in the EU change based on area density?

Trust in the EU decreases based on density/rurality of area ## Footnote This finding is supported by Kenny and Luca, 2021.